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All right. Thank you everyone for attending. We are very pleased to have Joe Cotillo, the CEO of Sterling Infrastructure, for a one-on-one discussion. We're going to talk about something we haven't discussed the entire conference, AI and data centers. Joe, you're obviously a leader in the space and you have a lot of forward visibility being part of what's become an ever-increasing bottleneck around advanced facilities so great to have you on would love a brief introduction and then we can get into some Q&A Yeah, so I appreciate everybody taking the time Joe Cotillo, CEO of Sterling Infrastructure We focus, when we talk about the AI space, in the site development and the electrical aspects of the build-out. And as we get into the questions, I can tell you right up front, we've had a lot of questions around slowdowns, delays, pauses, all the political rhetoric. I can tells you firsthand, we have seen no delays, no pauses no push-outs, no cancellations. Every week we hear from our customer base, which is the biggest hyperscalers in the U.S., along with the second tier below them, how do we do more faster? And so it's interesting in today's world and in today'S market. I read the newspaper and I hear and see one thing and I talk to our teams and I talked to our customers and it's 180 degrees from what we're reading. Yeah, well, you stole my first question, but there's a lot of nimbyism, and it's manifested itself in a lot of different ways. It's moratoriums, power constraint, just general community uproar. What are your clients telling you about it? Yeah, I think the hyperscalers will admit one thing. They have not done a good job of getting ahead of what I'll call the public perception of what they're doing. I think there's a lot of myths that are very different from the realities. We were talking earlier with some groups on water consumption, what they are doing with the grid. There's very little water used in these. They're closed systems, so once you fill them, they're not using a lot of water. They're actually building out or funding a lot of the grid build-out to get power to them, et cetera, et cetera. So they haven't done a great job. But there's a very different reality versus the political rhetoric that we see in the newspaper every day. We're in the state of Texas, and to hear the governor of Texas come out and talk about slowing down data centers, I don't know who had a heart attack first in the State. But the reality is what they've put in place, I think, is more guardrails and stuff around small projects. It's had no impact on the large hyperscalers of the projects that are coming out in the fourth quarter, first quarter for sure. And we don't see anything happening in the future on that. Yeah, and a lot of these projects, would you say, are like building two of a 10-building campus? You know, you have a lot of the elements of feasibility already available, power, et cetera. So, you know, a lot OF this rhetoric is related to things that are in the common. To your point, there's more form than substance. Yeah, it is. And, you Know, the projects, what people don't realize is two things. One, we're in a unique situation that we have three to five years of visibility of what's coming. So we're working with these customers for multiple years on projects before they even come out. We haven't seen any of those slow down. And when we start a project, all the permitting is done, power is there, everything is completed. So it's not going to necessarily stop. It's done. The one thing we are seeing with the projects is the size and the scope of them continue to get significantly larger. you know a few years ago when we got into this we got interested when they were around 100 acres we were really excited when they got up to three or four hundred acres and said if they could just stay there for the rest of our lives we'd be the happiest people in the world i'll tell you we're working on jobs right now that are 10 000 acres plus and when you start putting self-powered generation on uh 28 29 you know they're talking jobs or talking uh campuses north of 30 40 50 thousand acres and and touch on that because you usually think of other folks like engineers having sort of the front end part and that level of visibility but in some ways you're an n of one in terms of a service provider and so you're working directly with the hyperscalers to kind of plan out some of the work they're doing we've had this fantasy of 2030 and then a cutoff and Now we're seeing data that supports not only growth over that period to 2030, but that continued sort of evolution beyond. What gives you that sort of demand outlook confidence over the next three to five years? Yeah, as I tell people, we're the canary in the coal mine. What most people don't understand is for the next generation of data campuses to start and break ground five years from now, they're working on them today. They're literally spending hundreds of millions of dollars up front to get those ready. So we work with the hyperscalers on their five-year plan. So we know what's coming out, approximately where it's coming out, and obviously the timing. And people say, well, why is that? Well, it takes five years today. First, you've got to get land. You have to permit the land. You've got to either run power or get utilities there in some way, shape, or form. On the self-power generation, you have to order a turbine, which now has a five- or six-year lead time, so they're ordering this stuff up front. So the time it takes from the decision point of spending money to actually breaking ground used to be about three years. It's now up to five years. Semiconductors, similarly. You know, we started doing the facility in New York, and I remember, I tell the story, I remember when Micron announced they were going to spend $110 or $150 billion on this facility, our phone was ringing off the hook. Did you get the job? Are you going to do the job?" And I said, there's not a job, right, first of all. And a couple months go by, and everybody says, you got the job, you're going to do the work. the job. We said, there's not going to be a job for five years. And one year into it, people said, well, you must have lost the job, you're not talking about this job. And I said, in five years, call me and we'll talk about the job." And they were right, I was wrong. It was four years and six months from the time the funding was announced till the time we broke ground. So I was off six months. But the reality is it takes that long to do it. And they're also worried about capacity because the size and amount that is coming at us, they finally realized that there is a capacity constraint coming down the road to build these. So they're trying to give us a much longer look at it so we can build capacity in parallel with them. Yeah, and part of that is even just alliance agreements with some of these hyperscalers because it's almost like mutually self-assured destruction. You need them as much as they need you. And so in some ways, they're trying to help you plan and phase so that you can execute for them. Yeah, no, absolutely. It took us a couple years of trying to explain to them that this was coming, but they've got it. And as a result, it's interesting because in a lot of cases, we're actually working on projects directly for the hyperscaler before a general contractor or electrical contractors even picked just to get speed or reduce the total cycle time of the project. At the end of the day, time is money for these guys, and they are really worried about how to speed up these projects and get more done faster. That's all we hear every day from them. So that sort of business model structure, visibility, alliance agreements, if you think contractually in terms of your backlog, or what I'd call shadow backlog with next phase opportunities related to existing backlog. What kind of visibility do you have there? Yeah, so first, the great thing with how we do this is our jobs are phased, so we're not stuck into one large long-term contract. For us, that's the greatest thing. It reduces risk significantly, allows us to adjust pricing along the way as necessary, and doesn't enable us to get into a lot of risk on the project. To the outside world, it's challenging for us because none of it shows up as backlog. Only a small piece does. So we were going through with groups today an example of a job that we're currently on. And when we talk about our backlog and future phase work of being $7 billion, I will tell you that that number is extremely low relative to what it really is. And I'll give you one real-life example of a project that we're on. The project started out, the hyperscaler, it wasn't a hypersgaler, it was another group, bought 600 acres of land. And they said, we're going to build a data campus on 300 acres. So we start the 300 acres, That 300 acres, approximately $300 million to complete. We knew that was going to be the minimum. However, we put $10 or $15 million in backlog. We only talk about future phase where we have 30% of the design complete, so there's probably another $50 million in future phase, but we know it's going to beat $300 billion. So we're off there by a fair amount to what's goingto happen. However, what we don't talk about is that other 300 acres as soon as they're finished with the first 300 acres, they're going to develop. So that's roughly another $300 million. It's not in future phase, not in backlog. In addition, they've purchased 800 incremental acres attached to that. So that'll be, call it another $700 or $800 million of work there. So instead of a three-year project, that's going to be an eight- to ten-year project. Now, to put it in perspective, the projects we're bidding today are five to 10 times bigger than that project in totality. So as we talk about is 2030 or 2032, we're sitting there today looking at projects that we're starting or getting ready to work on over the next 12 months. There will be 8, 10, 12-year projects. And that doesn't include the electrical spend that comes on the back end of it, which will extend it out another 2 to 4 years. So if you take a look at it, Everybody's worried about this slowing down or stopping. Worst case scenario, which wouldn't happen, but if it stopped tomorrow, we'd still be working for at least five, probably seven plus years on some of these projects. So it's really, really fascinating how big they are in that. Our challenge is how do we articulate to the outside world that we have that much work in front of us that we still have to do that's not technically backlogged or under contract. Right, but in some ways you have proof points with historical work that you've done that sort of lead off into. We have 100%. When we plan our flag, as we say, when we plan out our flag and start a project, we have 100% hit rate to complete everything that's done on it. Wow. Just in this year alone, we've picked up four major campuses that we didn't start that were in vowing the customer out because it was either in a geographic footprint, we weren't in or was in a time frame that we didn't have the capacity to start. You touch on a good point. So what is the bottleneck? Is it customer demand? Is it just the ability in terms of labor, resources, capital to prosecute the work that's ahead? Yeah, a little different for site versus electrical. Site is more around project management skills. Though equipment's going to start getting tight towards the end of this year and next year, That will be a challenge. We've done some stuff with CAT to get our fair share or maybe more of the equipment coming out. On the electrical side, it's labor. It's pure electricians. But the piece that gets a little confusing is a country where we finally have started more technical schools, getting folks into trades, young kids, and even some middle-aged adults actually going back for career changes. But the problem is it takes four years to get an electrician certified. So we have now hundreds if not thousands or thousands if not tens of thousands of young people and apprentices going through the electrical program, which is great. However, there's just one fundamental flaw with that, is you have to have a journeyman for apprentices. So in the state of Texas, as an example, every journeyman can have a maximum of four apprentices. So if I don't have enough journeymen, it doesn't matter how many apprentices I have, and it's going to take four to five years to get these folks to become journeymen. So we have this four-year window that's going to be very challenging until those classes start to graduate and become journeyman to really build the population of electricians that we can use in the industry. So what's to solve? Is it modular work? Is a guest worker programs? Like, yeah, you can look at the Bureau of Labor Statistics. And by 2030, we're going to have something like a 30% shortage in electricians. So what is going to solve for it? Or is that just going to constrain the cadence of activity? What we're going to see is there's going to be a couple things that happen. First, no question, we just tripled the size of our modular and prefabrication facility. Anything we can build in the factory and get out, we can save 15%, 20% of the cost in labor. So that's a piece of it, right? That's one piece. How do we continue to grow it? Two, what we're going to see in what we are doing, we're hiring 80, just in Texas alone, we hire 80 electricians a week. And it's not that we're losing 80 electrician a week, we grew that business 140% year over year. We're using 80 more electricians per week. How are we able to do that? What's going to happen is if you think of the electrical business, there's a lot of small electrical companies out there today. And they may do work on maybe a hotel like this, or a small office building, or small industrial building. Highly competitive, and not high dollars in revenue. Those crews are mostly traveling crews, and what we need are traveling crews to go out to these facilities that are not in metropolitan areas anymore, they're in pretty rural areas. What we're able to do is take those electricians. We can pay them more, $5, $10, $20, depending on where it is, an hour more. They get 60 hours of work. And instead of moving from project to project every six months, they're out on a project for two or three years, right? So they got more stability in their life. They're making a lot more money. And we can kind of rob them. Now, what's going to happen is the small electricians or the small electrical businesses are really going to start struggling to get laid. So the big guys will be successful more so than the small guys until you deplete that pool, right? And then you have a whole other problem. So there's a few things. The challenge is to get through this next three to four years until the graduating classes start. But we believe that there really needs to be some immigration reform on top of it. That's the fastest way for us to bring in skilled certified electricians from around the world that can help us out. Yeah, and that's after data centers has created a huge sucking sound for any other form of infrastructure development. You've talked about the Micron project. How does that change your view around semiconductor facility and other sort of derivative forms of advanced facilities in the U.S.? And then we talk about reindustrialization of the country. But if these data centers are sucking up all the craft labor because they're paying better prevailing wage rates? And how is that going to marry with all the other work that's yet to be done? Yeah, I think, you know, in some ways, look, data centers are the hottest thing. But I think people are actually too fixated on just data centers. You know, when we look at the macro of what's happening, data centers is the biggest piece today, but it may not be the biggestpiece forever. And there's a lot of other big stuff coming. So at 28, we'll start seeing pharma being built. Those are going to be big, big factories and big projects. 2030, we've got semiconductors coming, right? In parallel to this, you've got the grid being built out. You've got three or so, at least three. There's, I think, five or six that have been permitted, but three LNG plants are probably going to go in the Gulf Coast. We keep getting asked about the eight nuclear plants that they're looking at starting around 2030 to 2032 coming out. The whole point of this is an electrician is an electricity is an electrician. A pipe fitter is a pipe fitters, right? And it's not just data centers that's fighting for these. It's completely different end markets that are all growing very rapidly that are going to be fighting for the same skills and the same trades. So it's going to get more challenging. The bottom line is who pays the most is going to get them. It's really, I think, that simple at the end of the day. And that speaks to project selection that this audience will appreciate being, you know, selecting amongst a variety of opportunity sets in front of them. Are you sort of essentially, have you become effectively like a fund manager and you're saying who are the guys that are giving me the best terms, the best milling multipliers, which are the best clients, and I'm going to just work for them and everyone else. We have. I mean, we're very selective. We turn down a lot more projects than people realize, either end customer or contractual terms. We're not willing to do that. But we're not beholden to data centers. If chip plants come out and they're much better margins and much better customer base, we'll move to them. We've moved multiple times through our journey. We focus on margin growth and cash flow, right, for us. That's the most important thing. And as we look at the market, not only today, but over the next seven to ten years, the opportunities are only going to get better. They're not going to gets worse. So why would we go, as we say, practice with someone when we can make real money somewhere else? And we're not, we're going to be alone on that. I think that's going to the interesting movement of resources and assets and capital. on how that all plays out. And are you sort of locking in sort of like what some of the memory providers are doing and saying, hyperscaler, I have this kind of pricing mechanism. I'm going to select the projects that I'm willing to do for you, but I'll give you capacity. Are you... Well, the way we're... Is that the next iteration? Yeah, we're staying away from any long-term commitments. You know, we've been asked multiple times to make some long- term commitments. We don't want to do that. You know, this thing's going to continue to play out. You could have expansion by customer A in a geography you're not in versus customer B in that geography, and, you know, we want to stay in certain geographies and stay away from some as well. So we're a believer that if we can deliver projects faster than anybody else, on time, every time, we can pick who we go to versus getting locked into that. Especially if you're not fungible, that labor pool is. Yeah, it doesn't matter for us. It doesn't care if it's a semiconductor plant or a data center plant or a pharma plant or battery plant. It's irrelevant. You touched on margins. I think there was some investor focus on the infrastructure margins. Operating margins were around 24%. Walk me through or color what that margin profile looks going forward? You're obviously integrating CEC. And what structurally supports this sort of margin profile, and how is this sort of competitive environment evolving? I know that's a loaded question. Yeah, no, we see margins continuing to improve. If you take a look at what we've done when we bought our plateau business as kind of our foray into the site development side of the infrastructure, their margins were 15% to 18%. Today, they're double that. We are very focused on margin expansion and cash flow, and we're very good at growing those margins. So as we look at the recipe that we've built for Plateau, it's directly applicable as we expand geographically, whether that's in Texas or the Rocky Mountains or the Pacific Northwest. And that is we take a business that's around 15%. We do vertical integration with that. We improve the equipment suite to have the biggest, best equipment. And as a result, we come close to doubling the margins in those businesses. So we know we can do it. We'll continue to do that. So everywhere that we've expanded, we have that opportunity for significant margin expansion in those. On the CEC side, we told the world 18 to 24 months, we'd expand margins 300 to 500 basis points, which is pretty good in the electrical world. We're on track. We're very confident. We've got the map and the equation to get us there. What's holding us back a little bit right now is we've got two legacy businesses there that when we bought it, we knew we were getting rid of. They don't make money. As a matter of fact, they lose money. So every good thing we do is we're trying to accelerate getting out of those. It drags us back down. We'll be out of Those by the end of 27. And we'll figure out a way to communicate what the margin improvement is on CEC along the way because it's very good. We're very happy with that. and if they've doubled in size, it's pretty hard to improve the margins like we have while doubling, adding all the electricians, but they've done a great job. The challenge we have is each business margins will continue to go up. As we make acquisitions and throw in another electrical business for $500, $600 million of revenue, 10% or 12% before we get it up to 15% or 18% or 20%, You have kind of a sine curve of margins along the way, and trying to explain that to people that, no, it's good overall. Margins are continuing to go up. It's just the mix that can get confusing to people. It's a mixed contribution, not a sort of same-store sale margin. No, margins aren't going backwards. In fact, they're getting better as you integrate these. And the core business, obviously, on the site development front, Just walk us through, your margins are fantastic for an infrastructure services provider playing in data centers. Why is that? Why can't someone else compete with you? Why do these hyperscalers try to lock you up for delivering service for the rest of their portfolio? Well, I think the first thing that people grossly misunderstand on the site side, and I can say this now that we own site and electrical, The electricians are, I joke with them, they're prima donnas, and they think their stuff is really complicated. I will tell you at the end of the day, we have both businesses. Site is exponentially more complicated than electrical. What people don't realize is there's an entire city with thousands of miles of pipe in some instances. One job we did, we looked at the conduit, and I forget, it went up to the moon and back like twice or something. It was like some unbelievable thing. I didn't believe the guys, and then they showed me. It was, like, they're actually right. People don't understand what's going on under the ground. And the potential risks and conflicts and complexity of that is much, much more than the average person can do. We do 3-D modeling. We use LiDAR. We have drone technologies. The stuff that our guys do relative to somebody who's just moving dirt, but it's night and day. So you're sort of N of one in terms of scale and sophistication. That's right. There's nobody that has the scale we do. Nobody has the sophistication, and then the vertical integration. People grossly underestimate the value of the vertical integration, not only what I can take out in time, which is the most important thing to my customer, but what I Can drive through productivity and margin improve. we control our destiny, but we can do things within the vertical integration that literally take out millions of dollars of cost that everybody else has to do. And when I did that, I did that cost in like everybody else does. I just know I'll never use it. So that helps us on the margin. And saving them on time means much more than... Saving them on Time. I mean, just with the addition of electrical, now doing the external electrical as part of the site package. In some instances, we can take out months of project time. You know, a real-life scenario, we're talking about data centers, but let's talk about semiconductors. We started the Micron facility up in New York around April, May. We delivered the September package in July. So they're actually building the first building. They thought they would start that next year. We'll deliver the January package in September. They've never been that far ahead on a project, neither one of the two GCs or the end customer. For them, to start the building six months early, especially if you're a GC and you've got liquidated damages of $250,000, $300,000 $400,000 a day, if I can build three months into your schedule of free money, that's the greatest thing in the world they won't they don't call anybody else why would you that's fantastic for the end client getting up and running that much faster is a factor more meaningful yeah i'll tell you that that end client asks us to come look at another job they have and see if we can get it back on track so i mean you have this crown jewel with the infrastructure you obviously have other attractive segments how do these how does sort of federal uh the transportation side fit into the equation how how did that part of the portfolio evolve relative to what's now become the core yeah so so it you know i think the transportation segment first of all it's it's you know I'll call it the Rodney Dangerfield of the company because they don't get enough respect right we we took that business, which was a losing business. Lost money. We've got a pretty young group here, so you're going to have to update your characters. My analogies. They're best in class on margins as a transportation business. Any other transportation guys would love to have our margins. However, it shows our strategy, our philosophy. We're not stuck to anything. Even though we've got best in class margins, we've done a great job with that business. In the second quarter, our largest transportation business for the first time did more e-infrastructure work than transportation. So we started two years ago to shift those assets and resources to start providing support to customers in a footprint that we couldn't get to out of our southeast business. And as a result, that business has taken off and grew 700% year over year, which is pretty good, and is now a major part of that. If we could shift 100% of transportation assets and resources to the infrastructure, we'd do it. We'll never get there, but we're continuing to move more and more there to pick up capacity. All right. That's helpful. You're an asset-light business. You generate a lot of free cash flow. Even the assets you buy, like CECO, generate a Lot of Free Cash Flow, so it has a cash-compounding effect. So you've got, I guess, a best-in-class problem with earnings and cash flow and your balance sheet. How are you prioritizing capital allocation today? Yeah, so it's a good problem to have, but it's a problem. So acquisitions is by far our best return. So acquisitions around site development, electrical, or some ancillary services that we could provide our infrastructure customers are our first priority. We're very opportunistic. We think the stock is underpriced. We have a fairly robust buyback program in place. We'll take full advantage of that in buyback shares. And then, you know, after that, we don't really have a lot of debt to buy down. We theoretically could pay off what little debt we have at any given time, but acquisitions is our primary focus, stock buybacks are second. Got it. And how is the opportunity set looking right now? So the good news is it's better than it was last year. Last year was a pretty poor market for acquisitions, not a lot of high-quality stuff out there, and the stuff we saw was grossly overpriced. We're particular. We're very picky. We'll look at 200 or 300 acquisitions a year before we do a couple. But this year's market is definitely better. Better quality businesses. We're starting to see conversations with both electrical and site where, especially on the electrical side, this bifurcation of the big are going to get really big, the middle guys are going find themselves in kind of no man's land and actually become smaller, where they are starting to talk for the first time on how to be part of a bigger team. On the site side, our challenge is there's not a lot of big players out there, so we're starting to look at mid-sized players more aggressively and see if we can't pull them in for incremental capacity. Part of the challenge is with the owners, they've all grown a lot over the last two or three years. And like us, they're bullish about the market over the next three to five years. So they say, well, if I hold on one more year, I'm going to grow another 30%, right? If I hold out two more years, I'll double and I'll get twice the money. So getting up to the altar is a little challenging right now. I can only imagine because most of these institutions have never seen the level of demand they've seen over the last couple of years. So it's hard for them to sort of capitulate and transact. Yeah, I think what ultimately drives them is they can't invest the capital fast enough to keep up. And at some point, what they're going to find, they don't realize it yet today, what they'RE going to FIND is they'RE GOING to be on the outside looking in because they CAN'T do the job, so they CAN't take on enough. And the customers are going to Find the big guys to step in and do that. Got it. We're at the hour. One last question. You talked about being valued very cheaply today. I think the market's taken a breath, but it's come pretty far from where it was three or five years ago. As you look out to 2030, what do you think the investors should really sort of think about as they think about the Sterling investment thesis? Yeah, so when I look at the business, it's interesting how the world changes. But we put together what we thought was a pretty aggressive growth plan. Grow 20% to 30% organically over the next five years, and then on top of it, add 20% or 30% growth through acquisitions. So growing the bottom line 50% a year is pretty good, especially with the debt ratios we have and throwing off the cash. Pretty nice business to have. and why our stock is in a rock shape I don't know you guys know that stuff better than I do but makes no sense to me our problem isn't the market to do that our problem is the exact opposite our customers are coming at us at a much faster rate with more work than that plan and we are sitting back every day trying to figure out how do we become more aggressive with that plan, grow more organically, grow more acquisitively, or else we're going to be giving up a lot more work. So 50% growth on the bottom line is not going to be good enough to keep up with what's happening. Wow. That's off a large base. It's off of a large basis. Well, thank you for your time. This was very informative. Thank you. Appreciate you investing time with us. Appreciate it. Thank you, Seth. Of course.